Lease vs Purchase

With low interest rates and the uncertainty and fluctuation in the stock markets, many physicians choose real estate to diversify their investments. One of the most predictable and simple investment opportunities may be the office space used by your practice. From office condominiums to free-standing buildings, there are more choices in the market than ever before. Yet, it's important to realize the pros and cons to consider based on your own practice and personal investment strategies.

Purchasing real estate has given many physicians the ability to sell their practice and have residual passive income. Real estate provides the physician both a stable place to practice for years and retirement income for the future.

On the other hand, leasing offers flexibility in your location, size, and terms with little initial cash contribution. Depending on your situation, you may want multiple locations to practice several days a week and attract a different patient population. Leasing allows you more flexibility with lower expense.

Healthcare Real Estate Services recommends that you account for all the factors before you buy or sign your next lease or lease renewal. Start by making a list of the pros and cons, and then do a side-by-side lease vs. purchase financial analysis for the options you are considering.

Purchase - Positive Aspects

  • Build equity

  • Control occupancy cost

  • Tax savings

  • Cannot be forced to move

  • Future rental income

Purchase - Negative Aspects

  • Cash investment required

  • Take on management responsibilities

  • Might need to sell the building to relocate your practice

Lease - Positive Aspects

  • Low cash requirement

  • No long term commitment

  • Easy to relocate

Lease - Negative Aspects

  • No equity or wealth building

  • Possible increasing rents

  • Could be forced to relocate

For a financial comparison, consider the effect on your practice. Will a large medical building lease bring more referrals or increase your client base? Will more accessible parking and signage that comes with ownership attract more patients? How might each location increase or decrease your patient volume? With your timeframe in mind, do the math. First, compare any moving costs and occupancy costs of each choice over a ten-year period. Then you are ready for a detailed side-by-side financial comparison.

With a building purchase, the principal reduction, property appreciation over a typical medical lease, and tax benefits can easily tip the scales in favor of purchase. We have helped many of our clients to secure 80%-90% financing of the purchase of their office space, including capital for equipment. If you decide to relocate, the property can be leased to another practice for income.

We are experienced real estate consultants and are ready to assist you in understanding the options available, so you can make the correct decision when it comes to leasing vs. purchasing. Contact us today.

Contact HRES at 248-514-9197 or submit the form below to request a consultation.